He's at his desk in the middle of Groupon's wide open, call
center-style office in Chicago. His headphones are on. His brow
is furrowed.

His company had been the darling of the business press for the
past two years. Suddenly it's not.

He can't hang on to a COO. The SEC is asking questions. Industry executives
are calling him a ponzi schemer. Early employees are
demanding six-figure pay for 9 to 5 hours. One even filed a
lawsuit. Merchant customers are screaming. And Mason and his
board, having helped themselves to $900 million of cash that
could have gone to the company, are are now being blasted for
incompetence and greed.

What a turnabout from a few months earlier, when Groupon was the talk of Wall Street. Then,
Groupon was one of the fastest-growing companies in history,
spurning $6 billion takeout offers from Google, preparing to go public at a valuation
fo $25+ billion. And now everyone was talking about it running
out of cash!

So what happened? How did things go so wrong?

And now that Groupon is finally going public, how will the
Groupon story end?

This story, as told to us by insiders, answers some of these
questions. Our sources all asked to remain anonymous, either in
deference to the SEC's "quiet period" rules for companies that
plan to go public or in order to remain in compliance with
severance agreements with Groupon. Groupon itself declined to
comment.

GOING CAPITALIST

AP

In 2006, Andrew Mason was a music major, getting a graduate
degree in public policy at the University of Chicago.

On the side, he was doing contract work building databases at a
company founded and funded by an entrepreneur named Eric Lefkofsky.

Lefkofsky was already a very rich man, having built several
businesses around call centers and the Internet. Mason was an
intern, "kind of squatting in their offices," according to one
source.

In January 2007, with Lefkofsky's backing, Mason started working
on a company — a do-gooder enterprise called The Point.

The Point was a social media platform designed to get groups of
people together to solve problems.

The Point was not intended to be a big money-making enterprise,
and by one early employee's account, that was fine with most of
the staff.

The Point launched in June. It gained modest traction in Chicago,
but basically went nowhere.

Every Monday, Lefkofsky, Mason, and a handful of early employees
would meet to talk about the Point's progress. One Monday, in the
middle of 2008, Lefkofsky raised an idea he thought could
revitalize the struggling start-up, based on a campaign he'd seen
launched on The Point.

Ordinarily, people used The Point to organize around some sort of
cause that might make the world a better place.

But in this case, a group of users decided their cause should be
saving money.
Their plan was to round up 20 or so people who all wanted to buy
the same product and see if they could get a group discount.

"Eric said maybe this is the thing that we do," says a source who
was at the meeting. "Maybe we set up a separate page, make it
dedicated to group buying."

In his intitial business plan for The Point,
Andrew Mason had actually mentionend group-buying as a possibile
way the startup could eventually make money. But when Lefkofsky
brought it up more than a year later, Mason and The Point's other
early executives dismissed the idea. "It didn't seem core to our
mission," says the person who was at the meeting.

Through the rest of the summer and early fall of 2008, Lefkofsky
would not let that idea go. He'd bring up all the expensive
purses his wife and all her friends were buying, and say, "It's
crazy! Couldn't they buy 20 of them and get a discount?"

Around this time, the global economy entered
free-fall as the sub-prime mortgage crisis exploded and credit
markets ground to a halt. Then in September 2008, Lehman Brothers filed for bankruptcy and
famous Silicon Valley venture capital firm Sequoia sent out a
presentation called "R.I.P. Good Times." Mason and
Lefkofsky decided to lay some people off.

"There was this pressure from the market crash [and] looking at
our burn rate and revenue — it was time for us to try something
to scratch that itch," says a source close to early
employees.

Groupon — a side project launched out of desperation by a team of
do-gooders who professed no real desire to make big bags of money
— was born.

Sources do credit Mason for coming up with some of Groupon's
defining characteristics: that it's one deal a day, that the deal
doesn't go into effect until enough people buy the voucher, and
that the vouchers should be for local businesses.

Andrew Mason in front of Groupon's first
logo

Some of the characteristics evolved out of a crucial element of
Groupon's early DNA; it was a business created by reluctant
capitalists.

"[The] way we rationalized it with ourselves," says an early
employee, "[was that we were] helping people find interesting
things to do in their city."

"Some of the early things we did were an hour in a sleep
deprivation tank, or skydiving. We [didn't] want to do stuff
that's going to wind up in a landfill. We [didn't] want to sell
overstock gadgets. We [didn't] want to deal with shipping and
returns."

These reluctant money-makers decided that Groupon should offer
one deal a day, and that it should sell vouchers for local
businesses. They decided that the daily emails should have funny
copy. Mason also pitched Groupon as a way to help local
businesses with cash flow at a time when banks were not
lending.

The concept immediately took off. Local press got wind of the
company and made a lot of noise about it. Employees successfully
recruited local business owners among their friends and families
to sign up.

"Merchants started to tell us 'if I want to do a 10,000 dedicated
email blast on Daily Candy, it's going to cost me X, but you're
telling me I can send it to 10,000 people for free, and only if
they buy, we'll give you a cut?' That was an eye opener,"
says one early employee.

By the end of 2008, Andrew Mason and Eric Lefkofsky knew that The
Point would become Groupon. In December, Lefkofsky
recruited Ted Leonsis, who made his name and
fortune building AOL. Leonsis would eventually become Groupon's
vice chairman. Lefkofsky's long time business partner, Brad Keywell, also signed on.

Others at the The Point/Groupon didn't see the transition quite
so clearly.

"At first we thought it would be a little skunkworks project and
we'd go on and it would help us raise money to further develop
The Point. But I think that idea didn't last very long
because we realized we had a tiger by the tail."

In January 2009, Groupon held its company holiday party at the
small apartment of its CTO, Ken Pelletier. He cooked for everyone
— the whole company and all their spouses and significant
others.

A year later, Groupon had around 300 employees.

A year after that it had 5,000+.

Today, Groupon has more than 10,000 employees.

Investors, some of them who also put money into Facebook, began calling Groupon the fastest
growing company in history.

The first major test for the project was its move into a second
market: Boston. "In Chicago," explains one early employee, "we
had a big network of friends and family to sign up and spread the
word. We had a lot of people who knew business
owners. It's easier for business owners to trust a local
company."

The expansion went off without a hitch — but only thanks to a
number of make-it-work hacks on the technical side.

During Groupon's first months, customer support head Joe Harrow
would spend three hours every afternoon personally emailing all
the customers who bought Groupon vouchers whenever a deal
closed.

Nine months in, Groupon switched to software specifically
designed for the new business.

Groupon successfully expanded into a third market: New York. By
this time, says an employee, "we kind of had the playbook we
needed to open in another city, another city, another city."
Groupon knew, for example, exactly how much to invest in
advertising in order to build a sizable subscriber list in a new
market.

By the summer of 2009, Lefkofsky started pushing hard for growth
in Groupon's Monday meetings.

He started by suggesting Groupon be in five cities by the end of
the year.

Then he started pushing for 10 cities by the end of the year.

Finally, according to a source familiar with those meetings,
Lefkofsky just started saying, "Why don't we try and go as fast
as we can? Why don't we turn up the jets?"

"We realized the main barrier to entry is going to be scale. So
we wanted to get to as many cities as we can because we saw
direct, outright, verbatim copies of what we were doing, popping
up all over the place pretty quickly. We said we can either go
chase them and beat them back and fight them legally, or race
ahead and do what we do, as best we can. So the choice was
to not look back, and try to be better and bigger."

One source close to Groupon's board says it was director Peter Barris of Groupon investor NEA that came up with the original analysis
behind this aggressive growth plan.

Groupon began to grow into a real startup with lots of
employees. It hired a COO who had worked at Yahoo and sold his own company before: Rob
Solomon.

By this time, not only were consumers noticing Groupon, the press
was catching on too. Mason went on CNBC. He went on "The Today Show." In August
2010, Forbes magazine put Mason on its cover.
His shirt is un-tucked. He's shrugging as if to say, who
me? The cover reads: "Groupon Is The Fastest-Growing Company …
Ever: The New Web Phenom."

Groupon developed a "typical startup culture," with "everyone in
their hoodies, and sales reps dating each other — that kind of
nonsense," says one early employee." It was sort of like a
fraternity that worked very hard."

"Working there was crazy," says another early employee. "[From
2009 to 2010] we hired 10,000 people. That was completely
insane — something that's never happened before, and should never
happen again. We ended up in 45 countries in 16 months. It
was nuts, it was fun, it was a blast."

THE MASTERMIND

Andrew Mason is the "soul" of Groupon, but chairman and early
investor Eric Lefkofsky is the "mastermind," according to one
source close to Groupon board members.

"I think people would be surprised at the level of involvement
that Eric has in the day-to-day business," says this
source.

Lefkofsky — a "quintessential entrepreneur" and "romantic,"
according to one friend — started his first business during his
freshman year of college. He sold carpets to underclassmen.
He expanded the business from one school to five, eventually
making $100,000 or so per year, which at the time, he says, made
him feel like "the richest man on planet Earth."

Andrew
Mason and Eric LefkofskyAP

After that, he started a t-shirt company. He sold it, too.

Then, with a friend he'd met in law school, Brad Keywell,
Lefkofsky bought a Wisconsin company called Brandon Apparel
Group. It made children's clothes with sports logos. Lefkofsky
and Keywell borrowed a lot of money to grow the company quickly.
It did grow quickly, but then it went bust.

In May of 1999, Lefkofsky and Keywell moved onto the Internet to
start Starbelly.com. It sold corporate tchotchkes online. The
pair sold the company for big bucks at the very top of the dotcom
bubble. Later, the company that acquired Starbelly failed, and
Lefkofsky and Keywell were sued by its shareholders.

During his time at Starbelly, Lefkofsky wrote an email that was
later produced in that lawsuit. The email gives a sense of what
it was like being in those Monday meetings at Groupon when
Lefkofsky demanded the company expand to 10, then 20, then 50
cities as soon as possible.

"Lets start having fun,"
Lefkofsky wrote, "lets get funky... let's announce
everything... let's be WILDLY positive in our forecasts... lets
take this thing to the extreme... if we get wacked [sic] on the
ride down-who gives a shit... THE TIME TO GET RADICAL IS NOW...
WE HAVE NOTHING TO LOSE..."

Finally, Lefkofsky started building successful businesses,
launching a series of call center-based Internet companies that
specialized in high head counts and high revenues. They were
InnerWorkings, a printing business; Mediabank, an advertising software business;
and Echo, a trucking business. Two of the three went public, and
MediaBank just completed a billion dollar merger.

Then came The Point, which turned into Groupon.

Besides pushing for Mason and The Point to experiment with a
product that would become Groupon — and then pushing for
its hyper-expansion — Lefkofsky was, according to several
sources, the real operator behind the entire enterprise during
its early days.

"Andrew is not a puppet. However, if it weren't for Lefkofsky,
Groupon couldn't exist as it does," says one source.

That's because early on Mason needed "filling around the edges,"
says another source close to Groupon's board.

So Lefkofsky — who is good at "efficiency in operations and
financial discipline" — had to do "a little bit of
what a COO would do and a little bit of what a CFO would do, and
little bit of what a chairman would do," while Mason focused on
product and development.

Since then, Eric has been "pushing Andrew" on details like "how
do we collect and pay the cash, how do we buy the servers?"

"And now he's brought Andrew along so he can go out on the
roadshow and he is fully fluent in every nook and cranny of the
business model, the financials, the cash. Eric — everyone on the
board — believes in Andrew and wants to make Andrew the best
founder and CEO ever."

These days, Eric no longer takes part in all of Groupon's
operating meetings. He does, however, remain
Groupon's largest shareholder — owning more than 21% of its
outstanding shares, about three times as many as Andrew Mason.

NEXT: SIX BILLION DOLLARS IS NOT ENOUGH

SIX BILLION DOLLARS IS NOT ENOUGH

By the summer of 2010, 18 months after its launch, Groupon had
several thousand employees, revenues in the hundreds of millions
of dollars, and businesses in more than a dozen countries.
It was only a matter of time before the biggest companies on the
Internet started paying attention — and trying to buy it.

Yahoo came calling first.

Sometime in the early to middle part of 2010, Yahoo corporate
development boss Andrew Siegel reached out and offered to buy
Groupon for
a price between $3 billion and $4 billion. What attracted
Yahoo most to Groupon was the promise of personalized
offers.

What attracted Groupon to Yahoo was just about nothing.

According to several sources, Andrew Mason simply did not want to
join Yahoo or work for its CEO, Carol Bartz, and that's what he told Groupon's
board.

He also said, "We're just getting started. I'm not ready."

Groupon rejected Yahoo's offer.

The board — and Groupon's investors — had a message for Mason,
though. Someday, he was going to have to either accept an offer
like that one he had just turned down, or take this company
public.

One investor recounts the conversation: "We said, okay Andrew,
you took venture capital, and remember venture capitalists want
an exit. It doesn't have to be tomorrow but you always have
to be thoughtful when a company comes to buy your company,
because it's not just you, it's your employees, options,
investors and alike."

Within weeks, Google approached Groupon with a huge bid — one
that, after negotiations, reached $5.75 billion. Selling
the company for a price that high would have been an incredible
return for Mason, Lefkofsky, Keywell, Leonsis, and the rest of
Groupon's stakeholders. Keywell and Lefkofsky would have made as
much as $600 million and $1.8 billion, respectively.

Because his firm was also an investor in Facebook, which had
wisely ignored several huge buyout offers, Groupon investor and
board member Kevin Efrusy of venture capital firm Accel hated the
idea of taking the Google offer and "was always pounding the
table, saying 'we should not sell, we should not sell.'"

In the end, Groupon rejected
the Google offer too.

"There's only one reason that didn't happen," says a source close
to Groupon.

"Anti-trust."

Groupon's board worried that the FTC would take 9 to 18 months to
review the merger, and that there was a very good chance it would
kibosh the deal.

"Eric Lefkofsky is very neurotic and he wasn't going to sleep for
9-18 months, and at the end of the day that freaked him out."

Even with all that cash, Groupon execs and its board feared it
would emerge from a failed review as "a broken company" because
it would have been difficult to hire and expand during the
interim.

"At the same time," says this source, "we started seeing insane
growth and that suggested that the deal was too good a deal for
Google."

All that said, Google probably could have had Groupon if it had
upped its offer one more time.

Says a source: "Had [Google] made a $7.5 billion deal instead of
a $5.75 billion deal, I think it would have gotten done."

Saying no to Google changed Groupon investors and board members'
view of the company.

"So Google offers $6 billion to buy the company, and Andrew and
Eric, to their credit, after lots of discussions with the board
and lots of people, say we know there's a lot of money at stake
and we know we can make a ton of money personally if we sell the
company right now to Google — we get our money, we would cash out
— but we don't think that's the right thing. We're going to
stay with it and continue to build the company," recalls one
source close to Groupon investors.

"And we go: 'Great. [But] if you say no to Google, then you've
got to IPO."

A number of sources close to Groupon say the whole ordeal
— Google's offer and the IPO goal — changed Andrew
Mason, and changed his outlook on the company.

Says one source: "When [the sale to Google] didn't happen, Andrew
said to himself, 'I'm going to be CEO.'"

Another: "I think he was definitely energized, and he realized
there was added responsibility now of that fork in the road."

Google's offer was eventually leaked to the press, and the
incredible amount of money involved in the deal raised Groupon's
profile to new heights.

NEXT: THE GROUPON BOILER ROOM AND THE GERMAN
INVASION

THE GROUPON BOILER ROOM AND THE GERMAN
INVASION

Groupon employeesDan
Frommer, Business Insider

In 2009 and 2010, Groupon became a very lucrative place for a kid
out of college to work.

"Early sales reps could definitely make six figures," says one
early employee. "Probably the ones that were the first 10 to 15,
were probably making well into the six figures. A couple
sales reps [were] probably making over $300,000."

"It was kind of first come first serve, so no sales rep was going
to be put on Boise, there was no Boise — they were all on
important cities. So their commission was huge because the
volumes were so much higher than what Groupon ever
anticipated."

"Their base was thirty something [thousand dollars per year],
[but] they were making a ton of money, because of cities like
Chicago or New York where Groupon thought they'd sell 200
Groupons in a week and they were actually selling 2,000 or
20,000."

These massive pay days for entry level employees pissed off some
of the older executives in Groupon's Chicago office.

"I think there was sometimes a little bit of animosity of people
who weren't in sales towards those who were working 9-5," says a
source. "I'm sure sales was hard but those of us in management
were joking about 24 year olds doing better then we would ever
do."

Groupon higher-ups knew that eventually an entry-level sales
position inside the company would have to have entry-level pay.

The change to a more professionally organized, sophisticated
sales force started in earnest in May 2010, when Groupon bought a
German Groupon clone called CityDeal.

THE GERMANS ARRIVE

CityDeal was founded by a trio of brothers named Marc, Oliver and
Alexander Samwer.

Marc, Oliver and
Alexander Samwer.

The Samwer brothers are infamous for having made a very rich
career out of building European Internet companies that look a
lot like American Internet companies — and then selling
those "clones" to their American inspirations. The two most
famous examples are Alando.de, which sold to eBay for $50 million, and StudiVZ, which sold
for $100 million.

The price Groupon was
reported to have paid for CityDeals was "somewhere around
$100 million."

What the Samwer brothers really got was a humongous chunk of
Groupon stock. Today, they own about 6.5% of Groupon's
outstanding shares. Mason owns 7.6% and Keywell 6.8%. If
Groupon's market cap reaches $10 billion in its IPO — as it is
expected to do — the Samwers' portion will be worth $670
million.

In the year and a half since that deal went through, the Samwers'
influence on the company has become commensurate with the size of
their stake in Groupon.

Just like any other company filing to go public, Groupon has to
list "risk factors" on its S-1 — things that could clobber
the company. One of these risk factors is if the Samwer
brothers were to quit working for Groupon.

Even this fairly dramatic warning does not capture the size of
the role the Samwer brothers play at Groupon.

That's because, these days, the Samwer brothers run the Groupon
sales force through their proxy, Groupon UK founder Chris
Muhr.

They rule it with an iron fist. With some mixture of admiration,
fear, and revulsion, their way is known amongst Groupon employees
as "The German Way."

"They're very shrewd, savvy, sharp elbowed guys," says one
source.

"They are extreme capitalists," says another. "For them
there is no soft and fluffy side of the business. They're
revenue driven, not people driven."

"I think a lot of us who were enchanted by Andrew's format of a
combination of people and money and customer, were kind of turned
off by The German Way. I think they really changed the internal
happiness for the workplace."

For one thing, "The German Way" has meant the end of absurd pay
days for entry level employees doing nine to five work. It's also
meant that Groupon's office place has become a much more intense
place to work for sales people.

There are two views of this change. One is that it is ruining a
once great place to work.

One source who holds this view says that the Samwer's proxy in
the U.S., Chris Muhr, "is the kind of guy who will hold somebody
up in a meeting, and say, 'Bob, you made a really dumb
decision. Bob, you're a stupid asshole, sit down.'
Really hurtful, demeaning, bad shit."

The other view of the changes the Germans have brought to Groupon
is — phew — it's about time.

One source close to Groupon's board who holds this view, says
that Groupon's sales force is simply becoming more like a large,
traditional, canvassing sales force — just like the old Yellow Pages sales teams.

"For the most part it's an entry level job, people start and if
people like it and are productive, then they get promoted.
But the job's not for everybody. Sales and telemarketing
are not for everybody."

Some, as one source put it, think the Groupon sales management
shift toward The German Way signals "a very strong change of
power from Andrew to the Samwer brothers."

"I think they play Andrew like a fucking violin," says another
source.

But at a recent public Q&A meeting with Groupon sales reps
and other employees, Andrew Mason made it clear which view of The
German Way he holds.

An employee asked, "What happened to you? It was supposed
to be fun here and now it's not."

But according to a source, Mason responded, "If I gave off the
impression that this was a place to just come and have fun, that
was my mistake, and I did something wrong."

"This is a job and you are supposed to work hard and what's going
on is maybe what you all needed to realize; that this is a huge
opportunity for all of you people so you should be working
hard."

One former Groupon sales rep, Ranita Dailey, is suing over the
new work conditions, alleging the company violated federal and
state labor laws by forcing her and other employees to work
unpaid overtime hours.

NEXT: WHO IS ANDREW MASON?

SO, WHO IS ANDREW MASON,
ANYWAY?

Andrew Mason — with his mild brown hair, scruffy beard, and faded
polo shirts — is funny in a way that most CEOs would be afraid to
be.

Andrew
Mason

Even as he's currently on the road asking major institutional
investors to trust him with hundreds of millions of dollars, his
Twitter avatar — his public face to the world — remains a picture
of him on his knees, in his underwear, gleefully unwrapping a
NintendoWii.

Once, we emailed Mason for a comment on a story, and he replied
in minutes: "You can say that I totally was going to comment
except the way you asked for my comment suggested that maybe I
shouldn't and I didn't want to let you down so decided not to
comment."

When we asked him what it was like being around so many famous,
rich people, he replied: "Have u seen Eyes Wide Shut?
Nuff said."

When we told Mason a quote like that could make for a good
headline, Mason replied, "haha... man that would be so good.
Unfortunately my commitment to our business is still
marginally higher than my commitment to fucking around."

On CNBC, a reporter once asked Mason if he really owned 20 cats,
as he'd previously told another reporter. Mason said no.

"Most CEOs will make stuff up about themselves to sound way
smarter and cooler and people are disappointed to find out
otherwise. I decided to set the bar very low and make up lies
about myself that make me sound lame."

This wacky, always-making-jokes version of Andrew Mason is the
one outsiders know. Sometimes we see a more serious,
self-reflective side of Mason — the one who started The Point,
and now admits he's surprised to see himself in the role of
capitalist.

Andrew Mason doing yoga in
front of a Christmas tree in his underwearScreenshot

How do these versions of Andrew jibe with the one supporting the
Samwer brothers' hardball business tactics? How is he also the
leader of a business that is already doing more than $1 billion
of revenue a year?

Mason grew up in Mount Lebanon, a Pittsburgh suburb. When he was
15, he started Bagel Express, a Saturday morning food delivery
service. He moved to the Chicago area after high school to go to
college at Northwestern. He majored in music. Then he started
working on a Masters in public policy. To make some money, he did
contract web design for Lefkofsky.

When hiring people for The Point, Mason struck recruits as young
— but very smart. Still, one early employee told us
that if it weren't for Lefkofsky's backing, he never would have
joined The Point.

For a while, Mason's age and inexperience showed. Always
interested in Groupon's product and the customer experience, he
wasn't exactly passionate about the nuts and bolts of running a
business.

Says one source close to the Groupon board: "Three years ago if
you had said to Andrew, this is really important for you to
master — where the money is made, know how many employees
you have, know the best way to onboard and recruit and terminate
employees — he probably would have said, yeah, I know. But
deep in his heart of hearts, I don't think he would have meant it
or internalized it."

To help Mason with the nitty gritty — helping him to understand
it, and to understand why it's important — Lefkofsky, the
Groupon board, and Mason himself have sought out mentors across
the industry for Mason to be in regular touch with.

Mason is in particularly close contact with Marc Andreessen, the Netscape cofounder
who's developed a second, very rich career as a Silicon Valley
investor and entrepreneur coach to CEOs like Mason and Facebook's
Mark Zuckerberg.

The other hard transition Mason had to make was from do-gooder
founder of The Point to Groupon capitalist.

Mason and other early Groupon employees have come up with
some pretty good rationalizations for Groupon and how it helps
the world. They like to say it gets people to try new things and
that it gets small businesses cash flow.

But most sources close to Mason and Groupon agree that he's made
the transition into business life quite easily.

One source says that after he joined Groupon, he learned that
Mason "is more of a businessman than I ever would have
guessed."

"He just likes to be the wacky, quirky, irreverent, 'I don't care
about money, I don't care about business.' It's bullshit. It's
just a shtick. He started as a socialist, and now he's as
capitalist as you get. He wants to build a really big
special company and he wants to fly private jets," says another
source who worked closely with Groupon and Mason.

Mason jokes with the press, this source says, because "he wanted
to be a performing artist at some point in his life, and he was
granted a stage to do that and he went for it."

Another source says Mason "still wears grungy old band t-shirts
and hoodies and disgusting flip-flops" and doesn't seem like he's
"turning into this snazzy, d-baggy CEO kind of guy."

But this source says Mason definitely "cares about making money."

"There's no way anybody would commit this much of his life and
time and stress to this if he didn't care about making money."

He cares about money because it is "validation that he is smart,
he can do this. "

Mason can turn against people.

"I remember one person, who's still there, at some point was
like, heads down working like a crazy person, super serious and
not able to crack a joke for a few weeks and I was like, 'what
the hell is up with you,' and he was like, 'I'm in Andrew's dog
house and I'm working my way back out, don't talk to me for a
month.' There's a little bit of that and once I heard that, I was
like, oh fair enough, see you in a month. So, yeah, it's a
trait of his."

"He's a total hardass," says another source. "He gives no
recognition at all. He's very hard to approach. He always
has a furrowed brow. He always has headphones on.
Everything is through e-mail. His free-wheeling funny guy
image is something he turns on very effectively when it's
required, but it's not him. He's very arrogant, he's
stubborn. He honestly believes he's smarter than everybody
else."

Asa Mathat | All Things
Digital

Not everyone takes Mason's aloofness so personally.

"Does he think he's smarter than most people? Yes. Is he?
Yes."

Some Groupon employees appreciate his stubborn streak.

One time Groupon's business development team managed to land an
offer with a "national entertainment brand" that would have
broken Groupon into a whole new market segment, but because the
deal wasn't great for Groupon subscribers, Mason squashed it
— despite protests from "most of the C-level people."

"Andrew was listening to all these guys explain to him how this
was going to be such a big deal, and he stopped everybody and was
like, 'you mean to tell me we're going to do a deal where we
offer x, y, and z, and you're excited about that? That's a
stupid deal, I wouldn't buy that? Would you buy that?' And
everyone looked around and he was like, 'we're not doing that
deal.'"

"He had a really consistent vision of what he wanted Groupon to
be and he didn't compromise that even when there were big
financial stakes. He's kind of no bullshit and tells it like it
is."

A source close to the Groupon board describes Mason as
"thoughtful," and "charmingly goofy." He says that Mason is
learning to become "a fully developed founder/CEO," one that
"provides the vision, the soul, the power-plant for the company
to continue to innovate and do great things and grow."

This source says that there are still things Mason doesn't like
having to do and that he will learn are necessary to do. To help,
Mason is, according to this source, "bringing on literally
hundreds of great seasoned executives and mentors."

NEXT: SO WHY CAN'T GROUPON HANG ONTO PEOPLE?

SO WHY CAN'T GROUPON HANG ONTO PEOPLE?

After Groupon turned down Google's $5.75 billion offer, Mason,
Lefkofsky, the Samwer brothers, and the Groupon board began
pushing the company toward an initial public offering.

In the interim, Groupon hired and lost its head of corporate
communications, Bradford Williams, in a two month period.

What was happening?

Pelletier had been at Groupon for four years, sprinting the
entire time. The winter before he quit, a close friend died. He
left the company because he was exhausted and felt like he'd
accomplished what he'd set to do, and was leaving Groupon in good
technical shape. He left money on the table.

When Groupon turned down Google's offer, and the board decided it
would set a course for an IPO, it became clear to all parties
that Solomon's time at the company was coming to an end.

Says a source, "Rob was seen as a startup COO, not a long term
COO."

"I think that the perception was he didn't have the chops to
manage the type of operations that Groupon had evolved to.
When it's that high up it's always a little mutual. He's an
awesome relationship builder but is he an operations guy looking
at the productivity and the yield per employee? I don't
think that's his thing, and I don't think he wanted that to be
his thing either."

Brad Williams didn't last long at Groupon, says one source,
because "Andrew wanted a communications person who could think
like Andrew, who could write like Andrew, who could react like
Andrew."

"Andrew is hard to work for in that role, like impossible.
He doesn't want to do all the work but he won't allow anyone else
to do it. He cares about the image, and the persona, and
the voice and perception and he wants all the news to be good
news. "

Through recruiter Russell Reynolds, Groupon is still reaching out
to New York and Silicon Valley PR types to try to fill WIlliams'
position. We've heard from some of them, and they say that
Groupon is hearing a lot of "no thank you."

Then there's Margo Georgiadis, the new COO.

Dan Frommer, Business
Insider

With Solomon on his way out, Mason remained convinced that,
long term, Groupon needed a COO — someone to do a lot of the
management Mason preferred not to do.

"Andrew really thought that would be very helpful to him to find
somebody to fill in the blanks of what he wasn't as good at and
maybe what he didn't like doing," says a source close to
Groupon's board.

"Her experience running large complex businesses. Her
understanding of sales operations. Her marketing mind is
just incredible," says a source.

"I've been doing what I do for [many] years, and I'm pretty good
at it, and she was just picking apart everything I did, and I
think what she said was right."

"It was like having a really good professor who kicks the shit
out of you, it's like, fuck, he's right. That was kind of the
feeling I had with Margo, 'wow, she's really good.'"

"I think not having Margo is a big loss for Groupon," says
another person who worked with her.

Sources say Georgiadis didn't work out because she's a
big-company executive, not a startup person, and that even though
Groupon has more than 10,000 employees, it's actually still very
small once you get past the huge sales force.

"She is driven, really smart. She's a really talented
manager. [But] she needs an environment that's not ready,
fire, aim. [She needs] ready, aim, fire, re-calibrate, lets
do a PowerPoint another time before we make a decision.
That isn't how we worked."

"We built the fastest growing company in the history of companies
and it's still operating in that way while also trying to
becoming more process oriented. She isn't that person who
is going to thrive in that environment. "

A source close to Groupon's board says that Georgiadis quit
Groupon for a great job at Google when the Groupon COO gig didn't
work out because she had a mistaken understanding of her
role.

"Her vision of a COO was command and control. Everyone
reports to her, she gets all the info, and then she goes to
Andrew."

"In her mind's eye, the COO had all of these people who had been
at Groupon reporting to Andrew, not directly reporting to
her. A lot of these people were accustomed to just going
and talking to Andrew. They reported to Andrew for all this
time. She felt really, really uncomfortable. There was this
really bad alignment and fit around the expectations of the
job."

"To their credit, they liked her at Google, and they didn't like
losing her and they recruited her, and she left."

Mason was "really hurt" by Georgiadis's defection, but this
source argues "it wasn't a huge loss. I mean look at the
quarter." Indeed, Groupon finally broke even during the
third quarter, most of which took place after Georgiadis
left.

Another perspective on the same situation is that it wasn't Mason
staying involved that ruined Georgiadis's expectations — it was
the Samwer brothers who boxed her out.

"My understanding is the Samwers were supposed to be reporting to
Margo. I didn't know that until after she left. It didn't
seem like it was that way," says a source who worked with the
Samwers and Georgiadis.

"The Germans can be very, very controlling. I'm sure they owned a
much larger percentage of Groupon then Margo ever did, so at the
end of the day their way probably won."

Briefed on the details of this story, Georgiadis declined to
comment.

A month after Georgiadis left, Groupon announced that it would
not be hiring another COO.

One source who worked closely with Mason for years says that's
the right call.

"Andrew is a very evolutionary creature, and as quickly as she
came in, he was going through this process I'm sure that's
saying, 'I'm the man, I want everyone reporting to me, I'm really
analytical and I want to dig into all this stuff. Do I
really need a layer between me and all these guys who are doing
all the hard work, and the fun stuff? No!' He didn't need
that layer."

By then, the business was huge. Groupon reported first
quarter revenues of $645 million, approaching 2010's total
revenues of $713 million. Bankers whispered to
New York Times columnist Andrew Ross Sorkin that Groupon expected
to go public with a $30 billion market capitalization.

But, to the shock of Andrew Mason, Groupon's big numbers were not
met with the kind of acclaim he'd grown used to receiving from
the press.

The numbers were met with ridicule, skepticism, and even
suspicion.

The first issue was that Groupon's S-1 reported the company had
actually lost money during the first quarter of 2010.

This was odd to see in writing, because for the year or so prior,
Mason had been telling reporters that Groupon had already been
profitable for quite some time. During an interview with CNBC the
summer of 2010, Mason told Julia Boorstin: "We've been profitable
now for almost a year."

Groupon actually lost $413 million in 2010.

Diving into the S-1, it turned out that Groupon only considered
itself profitable because it used a peculiar accounting metric of
its own creation — adjusted consolidated segment operating
income, or ACSOI.

Basically, Groupon was taking the money it was spending on
advertising to acquire new subscribers to its email and not
counting that money as a quarterly, recurring expense — but
as a one-time, capital expense, the way Google might account for
the cost of building a new server farm.

Groupon was saying that ACSOI helped it figure out the ratio
between the amount of money it needed to spend on marketing to
acquire a subscriber and how much that subscriber would be worth
to the company over the long haul.

But marketing expenses are not typically accounted for this way,
and people looked at Groupon as though it were trying to pull a
fast one.

A "Grouponzi" parody
S-1 by Zerohedge

Jose Ferreira, the CEO of a learning startup called Knewton, got a lot of attention for writing a
blog post that asked: "isn’t it really pretty obvious that
Groupon is a massive Ponzi scheme?"

A source familiar with Groupon's decision to publish ACSOI says
this reaction was frustrating for insiders who say the number
still helps Mason and Lefkofsky figure out exactly how much they
can afford to spend to grow Groupon in new markets.

In later filings with the SEC, Groupon removed references to
ACSOI, but a source familiar with Groupon's on-going accounting
practices says "[Groupon] still [looks] at those metrics and
measures, every week, every month, every quarter, internal.
It is an important metric of how [Groupon measures] the health of
the business."

ACSOI wasn't the only weird accounting in the S-1 that had the
press writing nasty headlines. Groupon's huge revenue numbers
were also inflated by an unusual accounting decision.

In its initial filing, what Groupon called its "revenues" were
actually its gross revenues, not net revenues. When Groupon
sells a voucher to a subscriber, it collects the cash, and then,
after the voucher is used at the merchant, gives some of that
cash to the merchant and keeps the rest. Normally, the
amount Groupon brings in before paying the merchant would be
called gross revenues. But Groupon called them plain old
revenues. Normally, the amount of money Groupon keeps after
paying the merchant would be called revenues or net revenues. But
Groupon called that "gross profit."

It was unusual accounting, and as with ACSOI, it made outsiders
suspicious.

One source familiar with Groupon's accounting practices says the
decision to emphasize gross revenues in the S-1 had more to do
with the way Groupon manages its own numbers internally than any
desire to make the company seem like a more successful business.

This person said that Groupon has always offered a full money
back guarantee for the full price of the vouchers it sells to
consumers, not just the portion it will eventually
keep. The
groupon is the product. Sales of that product added up are
revenues.

Another source close to Mason's thinking about such matters says
the gross revenues screw-up was much simpler.

"I honestly have no idea why Groupon was submitting a line item
that wasn't the right one. To me that seems like a rookie
mistake that's totally ridiculous."

After reviewing Groupon's S-1, the SEC asked Groupon to use net
revenues going forward. Groupon complied in later filings.

The revenue numbers went down, of course, and to the frustration
of Groupon insiders, this created a whole new negative news cycle
about the company.

In an effort to prevent pump-and-dump schemes, the SEC long ago
established strict "quiet period" rules for companies that want
to go public. Lefkofsky's assertion with a reporter was a
no-no.

Later, Groupon was forced to revise its S-1 and include a
paragraph warning prospective investors to ignore what Lefkofsky
said. "The reported statement does not accurately or completely
reflect our Executive Chairman's views and should not be
considered by prospective investors in isolation or at
all."

These missteps — which may have seemed minor in isolation —
started to create a negative aura around Groupon. Suddenly, this
company that seemed to have sprung out of Midwestern dirt
overnight looked fishy.

Reporters started digging into Lefkofsky's background. The
Starbelly.com lawsuit came up. So did Lefkofsky's shouting email.

This was a shock, especially since many of Groupon's principles
had already used much of the money Groupon had raised in previous
investment rounds to cash out instead of loading up the company's
balance sheet.
Business Insider's Pascal Emmanuel Gobry noted: "Groupon has
paid out $930 million to employees and investors; astoundingly,
out of the $130 million it raised in its penultimate round, $120
million went to the founders' pockets. "

AP

One source says that friends who knew he was close with Lefkofsky
would come up to him "all worked up" and ask questions like:
"Groupon is running out of money. How could Eric pull out all
that money?"

This source, certainly an apologist, explained how he would
answer these questions.

"Remember, Eric owns 22% of Groupon. He could have gotten cash
from the Google deal. Instead he said, 'I believe in the
company.' Andrew, and Eric, and Brad, take some money off the
table, and now the articles are written, they're greedy and they
pulled the money out of the company when the company doesn't have
any cash. And it's another one of those things, you go, how
does this happen if they wanted to cash out and run away, they
would have sold it to Google. They'd be done."

Andrew Mason made things worse, when, in August he wrote a memo
to employees defending the company against all these outside
attacks — and the memo ended up getting published on AllThingsD.
It seemed like another clear violation of the SEC's strict — if
old-fashioned — quiet period rules, and it further damaged the
image of the company.

By the time Groupon finally hit the road to pitch prospective
investors at the end of October, the expectations for its market
cap had fallen from $30 billion to closer to $10 billion.

One source close to Groupon's board says Mason and Lefkofksy have
displayed "real perspective, and real calm and steady
leadership," throughout the messy lead-up to the IPO.

But people who spent years working with Mason and Lefkofsky are
marveling at how badly the whole thing went down.

"This quiet period has been a fucking disaster," says one source
who helped build the company.

He says it's been particularly rough on Andrew Mason.

"He's having a rough year because we went through this amazing
run where we were the fair-haired child for a while, which all
these great internet companies get to be. We went through it all
quickly. We grew quickly [and] we went through the hate period
more quickly than anyone."

"I think the kid will come out of it much stronger. I think
you'll see a different Andrew that's more serious, now that he's
been beaten [down by] the biggest shit show in the history of
quiet periods."

"He won't be as wacky and silly in this next phase, his ego won't
allow that. "

A source close to Groupon's board says there has been no thoughts
of replacing Mason as Groupon's CEO.

Since that tough moment at Groupon's office in August, Mason has
made some changes. He's decided he does not need a COO. He's
decided to fire some of his under-performing sales staff. And,
after pressure from the SEC, Groupon's "earnings before marketing
costs" ACSOI is gone.

The company's marketing spending also dropped considerably in the
third quarter, which brought it close to break-even. Using
conventional accounting, Groupon reported it lost just $240,000
in the quarter — down from $101 million the quarter prior.

The fact is, Groupon looks like it is headed toward being quite
profitable, as it has always insisted it would be.

Not that this has silenced the Groupon bears, who remain
plentiful and loud.

After the third quarter numbers came out, Forrester Research
analyst Sucharita Mulpuru told the Associated Press: "Groupon is
a disaster. It's a shill that's going to be exposed pretty
soon."

Groupon bulls, meanwhile, like to point out that many analysts
said all the same things about Amazon, which struggled through its own
transition from light-speed growth to squeaking out a profit.

These bulls say that thanks to products like Groupon Now — a
mobile app that shows users deals at nearby merchants in real
time — Groupon is on its way to becoming something much more than
a daily deals company. They say it is becoming "a yield
management platform for business."

Groupon wraps its road show this week and will open on the NASDAQ
under the symbol GRPN shortly afterwards.

After watching Mason go through so much the past few months, a
source close to Groupon's board shares an observation.

"There are three acts in the American drama," says this source.

"Act one is young kid comes out of nowhere, surprises the
experts, wins big - he's the hero."

"Act two is a public fall from grace."

"Act three is the comeback."

We'd like to hear more stories about Groupon. Reach Nicholas
Carlson at Nicholas@businessinsider.com or 727 507 1699.

Special Thanks: Business Insider's Zachary
Lichaa helped significantly with this story.

CORRECTIONS: An earlier version of this story
said that Ted Leonsis was Groupon's first outside investor. In
fact, it was NEA. This story also said Brad Keywell was
investor in InnerWorkings and The Point. He was not. After we
published this story, two sources close to Groupon and The
Point's founding told us that group-buying was mentioned in
Andrew Mason's original business plan for the company. We had not
mentioned this before.